by Dana Thomas
To realize this “democratization,” the tycoons launched a two-pronged attack. First they hyped their brands mercilessly. They trumpeted the brand’s historical legacy and the tradition of handcraftsmanship to give the products an air of luxury legitimacy. They encouraged their designers to stage extravagant or provocative fashion shows—at a million dollars a pop—to drum up controversy and make headlines. They spent billions of dollars on deliberately shocking advertising campaigns—Dior’s grease-smudged lesbian ads to sell purses, Yves Saint Laurent’s full-frontal male nudity shot to sell perfume—that made their brands as recognizable and common as Nike and Ford. They dressed celebrities, who in return told every reporter lining the red carpet which company had provided their gown, jewels, handbag, tuxedo, or shoes. They began to sponsor high-profile sporting and entertainment events such as Louis Vuitton at the America’s Cup and Chopard at the Cannes Film Festival. The message was clear: buy our brand and you, too, will live a luxury life.
Then the tycoons made their products more available, economically and physically. They introduced fashionable lower-priced accessories that most anyone could afford. They expanded their retail reach from the original polished-oak-paneled family shop and a few overseas franchises to a vast global network, rolling out thousands of stores that are as ubiquitous and approachable as Benetton or Gap. They opened outlets to sell leftovers at bargain prices, launched e-commerce sites on the Internet, and ramped up their share of duty-free retailing. In 2005, travelers purchased $9.7 billion worth of luxury goods, accounting for one-third of all global travel retail sales. And travel experts say it’s only going to increase: according to the International Civil Aviation Organization, annual global air traffic is expected to reach 2.8 billion passengers by 2015, up from 2.1 billion today.
Luxury companies funded the expansion of their reach by listing themselves on the world’s stock exchanges. Going public brings many advantages to a luxury company: it raises capital, elevates the brand’s status, creates management incentives such as stock options, and makes the company more transparent, thus attracting a higher caliber of executive management. But it also makes the company beholden to stockholders who demand increases in profits every three months. “Going public does force you to change the way you do business,” former Gucci designer Tom Ford told me. “It forces you to be aware of how you are spending and where it’s going, to make some short-term decisions because that’s what shareholders respond to, and to juggle the long-term benefits with the short-term.” To meet those profit forecasts, the luxury companies have cut corners. Some use inferior materials, and many have quietly outsourced production to developing nations. Most have replaced individual handcraftsmanship with assembly-line production, much of it done on machines. Simultaneously, most luxury companies have raised their brands’ prices exponentially, and many justify the move by falsely claiming that their goods are made in Western Europe, where labor is expensive. To further pump up their numbers, luxury companies have introduced cheaply made, lower-priced accessories—such as logo-covered T-shirts, nylon toiletry cases, and denim handbags—and expanded their range of perfume and cosmetics, all of which bring in substantial profits when sold in great volume. The average consumer certainly can’t afford a $200,000 made-to-order couture gown, but she can drop $25 on a tube of lipstick or $65 on a bottle of eau de parfum spray to have a piece of the luxury dream.
All this hyped-up marketing of dreams has made luxury companies wildly successful and their shareholders extremely happy. In their best year—1999—luxury indexes rose a remarkable 144 percent, according to the investment banking firm Bear Stearns. And analysts predict that luxury sales will soon surpass those record pre–September 11, 2001, levels. There have never been so many wealthy in the world. In 2005, there were 8.3 million millionaires—an increase of 7.3 percent over 2004—who possessed $30.8 trillion in assets, according to the 2006 “World Wealth Report” (published annually by Merrill Lynch and Capgemini). The Swiss bank UBS’s wealth-management division had an influx of $76 billion in new money in 2005, an increase of 57 percent in one year. NetJets, the private jet-share company, saw a business increase of 1,000 percent from 2001 to 2006. The private security firm Kroll reported that its business from clients with at least $500 million in assets increased by 67 percent in just two years. And the “World Wealth Report” added that there has been a rise in “middle market millionaires” with assets of $5 million to $30 million.
But for some on the wrong side of this growth, those dreams are nightmares. Luxury brands are among the most counterfeited products today—the World Customs Organization states that the fashion industry loses up to $9.7 billion (€7.5 billion) per year to counterfeiting—and most of the counterfeiters’ profits fund illicit activities such as drug trafficking, human trafficking, and terrorism. Luxury incites other illegal activities, too. Japanese girls work as prostitutes in order to buy luxury brand handbags. Chinese “hostesses” accept shopping visits with their clients at luxury brand stores, which stay open until midnight, as payment for services rendered. The next morning, the hostess returns the purchase for cash, less a 10 percent “transaction fee,” thus inflating luxury brands’ sales figures in China and washing away any illegal cash transactions between the woman and her client. A true story, told to me over a summer lunch on the French Riviera in 2004: A rich, hip New York banker met a pretty Russian girl in the bar of the Hôtel Byblos in Saint-Tropez late one night and took her home with him. The next morning, she told him pointedly: “I could really use a new pair of Gucci shoes.” He understood immediately that she was a working girl and took out his wallet. “No,” she said, “Gucci shoes.” And to the store they went.
The tycoons’ marketing scheme has worked. Today, luxury is indeed democratic: it’s available to anyone, anywhere, at any price point. In 2004, Japanese consumers accounted for 41 percent of luxury sales, Americans 17 percent, and Europeans 16 percent. Expansion continues in India, Russia, Dubai, and of course China, luxury’s new El Dorado. While parts of China, like Xi’an, are still dusty and blighted, a new big-spending class is emerging at warp speed. When I visited the country in the spring of 2004, luxury companies considered China to be an immature market and an investment for the future. Eighteen months later, China accounted for 12 percent of all luxury sales—and this figure was expected to grow exponentially. Luxury companies are opening stores not only in Beijing and Shanghai but also in rapidly growing second-and third-tier cities such as Hangzhou, Chongqing, and even Xi’an. By 2011, China is expected to be the world’s most important luxury market.
And luxury’s barons have reaped the wealth. Bernard Arnault, chairman and CEO of the Paris-based luxury-brand group LVMH Moët Hennessy Louis Vuitton, is the most successful of them all. In 2006, Forbes named him the seventh richest man in the world, with a net worth of more than $21 billion. His fellow LVMH shareholders aren’t doing badly either. When Arnault took control of LVMH in 1990, it had sales of about $3.65 billion (about €2.8 billion) with net profit of $621 million (about €480 million). In 2005, it recorded $17.32 billion (€13.91 billion) in sales and net profit of $1.79 billion, or €1.44 billion. “What I like is the idea of transforming creativity into profitability,” Arnault once said. “It’s what I like the most.”
The luxury industry has changed the way people dress. It has realigned our economic class system. It has changed the way we interact. It has become part of our social fabric. To achieve this, it has sacrificed its integrity, undermined its products, tarnished its history, and hoodwinked its consumers. In order to make luxury “accessible,” tycoons have stripped away all that has made it special.
Luxury has lost its luster.
PART ONE
CHAPTER ONE
AN INDUSTRY IS BORN
“Luxury is a necessity that begins where necessity ends.”
—COCO CHANEL
MARC JACOBS is the most influential creative voice in luxury fashion today. As creative director of Louis Vuitton
, the world’s largest luxury goods company, Jacobs oversees the studio that in the last decade has produced sumptuous and witty versions of the classic Vuitton monogram handbag—like the denim jacquard one trimmed in chinchilla—that have sold by the millions. Yet Jacobs sees what he does at Vuitton as the antithesis of luxury today. “The way I define luxury isn’t by fabric or fiber or the amount of gold bits hanging from it,” Jacobs says, sitting in his Paris office, sucking on his umpteenth cigarette of the day as his bull terrier Alfred gnaws on a soup bone. “That’s an old definition. For me, luxury is about pleasing yourself, not dressing for other people.”
The contradiction between personal indulgence and conspicuous consumption is the crux of the luxury business today: the convergence of its history with its current reality. For most people, Louis Vuitton represents true luxury. The suitcase or handbag covered with its intertwining LV logo implies that its carrier appreciates the fine-quality craftsmanship, has the money to afford it, and travels in the same circles as other Louis Vuitton customers—in first class. Long ago, that assumption was true. Louis Vuitton supplied kings and queens, high-society matrons, and business titans. It was the luggage of the rich and famous. Today, however, millions of people from a wide range of economic backgrounds own Louis Vuitton products, ranging from a $120 money clip to a trunklike humidor that holds a thousand cigars. Louis Vuitton is the greatest example of what executives in the fashion business call democratic luxury: it’s big, it’s broad-reaching, and it sells wildly expensive stuff that nobody really needs. “When you look at [Louis Vuitton], you see it is mass-produced luxury,” Jacobs tells me. “Vuitton is a status symbol. It’s not about hiding the logo. It’s about being a bit of a show-off.”
Louis Vuitton is the cornerstone of a publicly traded luxury conglomerate called LVMH Moët Hennessy Louis Vuitton—or LVMH for short—run by French tycoon Bernard Arnault. In 2005, it had more than fifty brands—including Moët & Chandon champagne, Givenchy couture, and Tag Heuer watches—fifty-nine thousand employees and seventeen hundred stores, and did $18.1 billion (€14 billion) in sales and made $3.5 billion (€2.7 billion) in profits. Its flagship is Louis Vuitton, which does an estimated $3.72 billion in sales annually, accounting for approximately one-quarter of the group’s total business. Vuitton is the McDonald’s of the luxury industry: it’s far and away the leader, brags of millions sold, has stores at all the top tourist sites—usually steps away from a McD’s—and has a logo as recognizable as the Golden Arches. “Luxury is crossing all age, racial, geographic and economic brackets,” Daniel Piette, an LVMH executive, told Forbes in 1997. “We’ve broadened the scope far beyond the wealthy segments.”
The heart of Louis Vuitton is the trunk. Back in the mid-nineteenth century, when Louis Vuitton started his business, trunks were an integral part of travel, like suitcases on wheels are today. A traveler left for months at a time, with as many as fifty trunks in tow filled with everything from petticoats to porcelain. Today Louis Vuitton makes about five hundred trunks annually. Rarely are trunks used for travel anymore. If so—and it’s usually for nostalgic reasons—they’re often sent ahead by mail or boat, or loaded on private jets. More often Louis Vuitton trunks, old or new, are displayed in homes like art or used as shelves, coffee tables, or bars.
Louis Vuitton trunks are still made more or less the same way they were 150 years ago, mostly at the Louis Vuitton compound in the working-class Paris suburb of Asnières-sur-Seine. Entering the Vuitton compound is like stepping from drab, monochromatic Kansas into the rich Technicolor world of Oz. Across a thick green lawn framed by strong old trees and well-tended rose beds sits a simple two-story white stucco country house with gingerbread trim and a silvery zinc roof. Louis Vuitton, a hardworking artisan of humble roots, built the place in 1859 to move his family out of filthy, crowded Paris. Out back is a century-old, two-story, L-shaped workshop where 220 artisans build hundreds of trunks and sew thousands of handbags every year. It is one of fourteen official sites—eleven in France, two in Spain, and one in San Dimas, California—where Vuitton leather goods are produced.
The trunk’s structure is built out of okoumé, a hard, lightweight wood from Africa, by craftsmen in the big lumber shop on the ground floor. For the hinge, Vuitton craftsmen glue a piece of sturdy canvas to the inside, and another on the outside. Louis Vuitton invented this method in 1854 to replace the bulky metal brackets of the period. The canvas hinge doesn’t break, opens and closes easily, and creates a flat surface on the back of the trunk. The trunk’s exterior material—usually Vuitton’s waterproofed monogram or Damier check canvas—is glued onto the wood box and hinge. The corner covers are made of brass or of leather shaped by hot and cold pressure in a mold. The edge trim, known as lozine, is made of many layers of paper and cloth pressed together and dipped in a zinc solution. Upstairs, workers nail on the poplar belts around the middle, the lozine trim on the edges, the corner covers, and the hardware. The banging is so loud that most of the eight workers in the “hammering department” wear earplugs. The lining, made of a pearl gray cotton canvas called Vuittonitte, or a synthetic suede called Alcantara, is glued inside; khaki woven cotton straps that read “Louis Vuitton” are attached to hold items in place. The trunk is then cleaned up, inspected, and sent off to be packaged and shipped.
Thousands of handbags are made at the Asnières compound each year as well. The steamer bag—originally designed in 1901 as a laundry sack for steamship travel and today one of the Vuitton’s most popular items—is made by hand. Steamer bags, handbags made of exotic leathers such as crocodile and ostrich, and special-order items are all made by one artisan rather than on the assembly line. Vuitton gets about 450 to 500 special orders each year. Some are simply new editions of an existing model, like the trunk bed first designed for French explorer Pierre Savorgnan de Brazza in 1868 for his African travels through the Congo; others are a reworking of something that already exists, like a jewelry box covered in an exotic skin instead of the monogram toile, or something designed to the customer’s specs. When I was in Asnières, one artisan was finishing up a tennis bag in Damier canvas that holds two rackets; it took two weeks to produce and would be the only one in the world.
The rest of Vuitton’s production is assembly-line work, most of it done on machines. In a big sunlit room on the second floor, a dozen seamstresses were running up hundreds of LV monogram denim Pleaty handbags on their machines. These bags would sell for $1,150 apiece and be so popular they’d be back-ordered within weeks. “High profitability comes…in the atelier—the factory,” Bernard Arnault once explained. “Production is organized in such a way that we have unbelievably high productivity. The atelier is a place of amazing discipline and rigor. Every single motion, every step of every process, is carefully planned with the most modern and complete engineering technology. It’s not unlike how cars are made in the most modern factories. We analyze how to make each part of the product, where to buy each component, where to find the best leather at the best price, what treatment it should receive. A single purse can have up to 1,000 manufacturing tasks, and we plan each and every one.”
Today, there are three Vuitton family members employed by the Louis Vuitton company: Patrick-Louis, a fifth-generation descendent of the founder, who oversees special orders and serves as a house ambassador; his youngest son, Benoit-Louis, born in 1977, who is watch special orders manager at the headquarters in Paris; and Pierre-Louis, his oldest son, who works as a craftsman in Asnières. I ran into Pierre-Louis as I visited the workshop in the spring of 2006. Pierre’s a kind-looking fellow, rather pale, with hazel eyes, closely clipped dark hair, and protruding ears. He was dressed in a white lab coat over a checked shirt and jeans. On the pocket of his coat was an LV logo embroidered in brown thread. He was walking some bits of canvas for jewelry boxes from one station to another. Pierre had joined the company about a year and a half earlier, after a short stint in computers. He had visited the Vuitton factories in the provinces and was so moved by the cr
aftsmanship that he asked Vuitton owner Bernard Arnault for a job. Arnault said, “Of course.”
“I love this company,” Pierre told me. “It’s in my veins.”
And then he got back to work.
LUXURY AS WE KNOW IT today is rooted in old Europe’s royal courts—primarily those of France, which set the standards for lavish living. In the seventeenth century, French king Henri IV’s second wife, Marie de Medicis, wore for the baptism of one of her children a gown embroidered with thirty-two thousand pearls and three thousand diamonds. Louis XIV dressed in satin suits with velvet sashes and frilly blouses, high-heeled shoes or boots, and wigs of flowing curls topped with ostrich-plumed chapeaux. To maintain control over his courtiers, he dictated to them what they could wear, when to wear it, and how to wear it. He declared what height necklines should be, and the length of gown trains. To please the king, the ladies of the court wore wigs so tall that their servants stood on ladders to assemble them.
Madame de Pompadour, the mistress of Louis XV, personally encouraged and supported the luxury artisans and helped found the Sèvres porcelain factory to provide the Château de Versailles with its royal services. Louis XVI’s wife, Marie-Antoinette, overran her annual clothing budget of $3.6 million by buying gowns encrusted with sapphires, diamonds, silver, and gold—but according to observers, it was money well spent. She was “an object too sublime and beautiful for my dull pen to describe,” wrote John Adams, a U.S. diplomatic envoy to France in the late 1770s and later the second American president. “Her dress was everything that art and wealth could make it.” Napoleon’s wife, the empress Josephine, spent half of the $15 million France earned selling the five-hundred-million-acre Louisiana territory to the United States in 1803 on clothes in ten years. “French fashions must be France’s answers to Spain’s gold mines in Peru,” declared Louis XIV’s finance minister Jean-Baptiste Colbert, for whom today the Committee Colbert, the French luxury brand trade association, is named.